How to Cancel a Second Mortgage

You have the right to change your mind.

Many people who take out second mortgages are unaware that they are filed as a second lien against their property, and create a second payment. Most second mortgages are adjustable-rate loans, which means the payment will fluctuate. Any second mortgages taken out on the home you occupy are subject to a federal requirement of a three-day right of rescission. This is a period of three business days in which you can decide if the loan is right for you. If it's not, you have the right to cancel the loan at no cost.

Things You'll Need

• Recission form supplied by your closer with addressed envelope
• Your HUD1 (closing statement, showing charges you paid)
• Your loan number
• Contact number for your lender

Instructions

Canceling a second lien on your home

1. Get out the closing package that was given to you at the closing of your second mortgage. Find your rescission letter and your promissory note from the package. Review the note, and if you believe taking the loan will be a financial mistake for you, sign and date the rescission letter. Other parties to the loan, if any, must sign and date this form as well. You must date this letter within the three business days after you have signed your closing documents, and send or deliver the letter.

2. Call your lender to inform it that you have decided to rescind the loan because it is a bad decision for your finances. The lender will inform the closer of your decision, since the closer is responsible for disbursing checks to you (or any others that you may have instructed them to send out).

3. Check your calendar to track the three business days. Example: If your closing was on a Wednesday, count Thursday, Friday and Saturday. The loan would be disbursed on Monday. If you closed on a Friday, count Saturday, Monday and Tuesday. The loan would disburse on Wednesday. (Saturday is counted, but Sunday and all federal holidays are not.)

4. Mail your letter. Be certain it is postmarked on a date that falls within the three business days that federal law allows you. Mail it with "return receipt requested" so you are notified that it was received. You can choose to hand-deliver this letter if you are local to the lender. If you mail the letter, give a courtesy call to your lender as well so that no funds will be sent out on the fourth day, in case your letter does not arrive before the disbursement date.

Tips & Warnings

• Forethought can save a lot of work. When your lender is presenting you with information on costs, interest rates and payments, discuss your thoughts, fears and concerns regarding the loan. Clear thinking and asking questions can lead to an earlier good decision, which can save a lot of anxiety.

• If you are past the rescission date and believe you have been scammed or fraud was involved with your transaction, report this to the attorney general in your state. You can still rescind the loan.

References

• Bankrate: Right of recission let you back out of some loans
• Truth in lending.com: Three day right of recission
• Chicago Title: Right of Recission Form

Resources

• Federal Reserve.gov: Home Equity Loans